United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2005 HQ Rulings > HQ 967765 - HQ 967968 > HQ 967864

Previous Ruling Next Ruling
HQ 967864




September 8, 2005

CLA-02 RR:CTF:TCM 967864 RSD

CATEGORY: MARKING

Mr. Karl Krueger
DHL Danzas Air and Ocean
2660 20th Street
Port Huron, Michigan 48060

RE: Country of origin and NAFTA eligibility of finished differential cases for motor vehicles imported into the U.S. from Canada

Dear Mr. Krueger:

This is in response to your letter dated July 18, 2005, on behalf of Linamar Sales Corporation, requesting a ruling regarding the country of origin of two differential cases for motor vehicles.

FACTS:

The subject merchandise under consideration is differential cases used in motor vehicles. Two different types of differential cases are being imported. The two separate differential cases are a locking differential case and an opening differential case. The differential cases are cast in the U.S., and shipped to Canada for machining and cleaning. The machining consists of turning, milling and drilling. These processing operations in Canada are further described as:

1. Turning: The flange is turned, outer diameters and inner diameters are turned to a specified size.

2. Milling: The inner orbital races are milled.

3. Holes: Customer mountings are drilled in the flange and pin holes for the internal gear mounting (gears mounted by customer after importation).

Clean and Deburr: Parts are washed, deburred, inspected, and packed.

After the processing is completed in Canada, the differential cases are returned to the United States as finished goods. You indicate that the differential castings are classified in subheading 8708.99.80 of the Harmonized Tariff Schedule of the United States (HTSUS) when they are shipped into Canada. You further indicate that when the finished differential cases are returned to the U.S., their classification will remain in subheading 8708.99.80, HTSUS.

ISSUE:

What are the country of origin marking requirements and the NAFTA duty rate of the above-described differential cases that are cast in the U.S. and then exported to Canada where they are processed before being returned to the U.S.?

LAW AND ANALYSIS:

The marking statute, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134, Customs and Border Protection (CBP) Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. §1304.

Section 134.1(b), CBP Regulations, defines “country of origin” as the country of manufacture, production, or growth. In order to change the country of origin, further work or material added to the article in another country must effect a substantial transformation. However, for a good of a North America Free Trade Agreement (NAFTA) country, the NAFTA Marking Rules will determine the country of origin. 19 CFR §134.1(b).

Section 134.1(j) provides that the “NAFTA Marking Rules” are the rules promulgated for the purposes of determining whether a good is a good of a NAFTA country. A “good of a NAFTA country” is an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. 19 CFR §134.1(g).

Section 134.35(b) states that a good of a NAFTA country which is to be processed in the United States in a manner that would result in the good becoming a good of the United States under the NAFTA Marking Rules is excepted from marking. Unless the good is processed by the importer or on its behalf, the outermost container of the good shall be marked in accord with this part.

Article 401 of NAFTA is incorporated in General Note 12, HTSUS, General Note 12(a). General Note 12(a)(i) of the Harmonized Tariff Schedule of the United States provides in relevant part:

Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "CA" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.

Thus, by operation of General Note 12, the eligibility of a particular article for NAFTA duty preference is predicated, in part, upon an origin determination under the NAFTA Marking Rules of either Canada or Mexico.

Section 102.11, CBP Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. Paragraph (a) of this section states that the country of origin of a good is the country in which:

(1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or (3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

We will assume for the purposes of this ruling that the classifications of the differential cases entering into Canada and the United States set forth in your letter are correct. Your letter indicates that upon exportation to Canada, the unfinished differential case castings are classifiable under subheading 8708.99.80, HTSUS. After the machining and processing operations are completed in Canada, the differential cases are imported into the U.S. under the same subheading of 8708.99.80, HTSUS.

Pursuant to 19 CFR 102.11(a)(3), the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20, and satisfies any other applicable requirements of that section. In the case before us, because the differential cases imported into the U.S. from Canada are classified under subheading 8708.99.80, HTSUS, the change in tariff classification must be made in accordance with section 102.20(p) Section XVII: Chapter 86 through 89, subheading 8708.99, which requires “[a] change to subheading 8708.99 from any other subheading.”

In this instance, the unfinished differential cases, which are initially classified under subheading 8708.99, HTSUS, remain classified under subheading 8708.99, subsequent to the additional processing completed in Canada. Therefore, there is no applicable change in tariff classification requirements of section 102.20, and country of origin of the goods may not be determined in accordance with this provision.

Because 19 CFR 102.11(a) (incorporating section 102.20), is not determinative of origin, the next step is section 102.11(b), CBP Regulations, which states in part:

Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country origin cannot be determined under paragraph (a) of this section:

The country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good,.

In the instant case, the imported differential case is composed of a metal differential case casting of U.S. origin, which has undergone additional processing in the form of turning, milling, drilling, deburring and cleaning in Canada.

When determining the essential character of a good under section 102.11, CBP regulations, section 102.18(b)(1), provides that, for purposes of applying section 102.11, only domestic and foreign materials (including self-produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in section 102.20 shall be taken into consideration in determining the parts or materials that determine the essential character of a good. See HQ 560038 dated February 7, 1997.

In your letter you indicate that the differential case castings are of U.S. origin. For the purposes of this ruling, we will assume that your claim that the differential case castings are of U.S. origin is accurate. Because the finished differential cases consist of only one material, and because that material is classifiable in a tariff provision from which a change in tariff classification is not allowed under the applicable rule set forth in 19 CFR 102.20(p), the U.S. origin differential case casting is the single material which imparts the essential character to the finished good pursuant to section 102.18(b)(iii). Accordingly, for country of origin marking purposes, the country of origin of the finished differential case after the casting has been turned, milled, drilled, deburred and cleaned is the U.S. Because the marking requirements of 19 U.S.C. 1304 are applicable only to articles of "foreign origin," the differential cases need not be marked upon entry into the U.S. However, use of the phrase "Made in U.S.A." is within the jurisdiction of the Federal Trade Commission. Therefore, you should contact the FTC regarding the appropriateness of the use of this phrase. The FTC address is: Federal Trade Commission, Division of Enforcement, 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20508.

As demonstrated by the foregoing analysis, in the case before us, application of the NAFTA Marking Rules contained in 19 CFR 102.11 did not yield an origin determination of either Canada or Mexico, but the United States. However, the NAFTA Preference Override set forth in 19 CFR 102.19 is applicable to the subject merchandise. Specifically, 19 CFR 102.19(b) states:

If, under any provision of this part, the country of origin of a good which is originating...is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.

Based on the facts presented, the differential cases at issue are originating goods under NAFTA and have been determined under section 102.11(b) to be goods of U.S. origin. Because the articles were returned to the U.S. after having been advanced in value or improved in condition in Canada by virtue of the machining and cleaning operations, the country of origin of the differential cases for Customs duty purposes is Canada, pursuant to 19 CFR 102.19(b). Accordingly, the "CA" NAFTA rate will be applicable to the differential cases.

HOLDING:

On the basis of the information provided, for country of origin marking purposes, pursuant to 19 CFR 102.11(b)(1), the country of origin of the two types of differential cases cast in the U.S. and exported to Canada for turning, milling,
drilling, deburring and cleaning prior to importation back into the United States is the U.S. Therefore, the imported differential cases are not subject to the marking requirements of 19 U.S.C. 1304.

The two differential cases of U.S. origin which undergo additional processing in Canada including turning, milling, drilling, deburring, and cleaning prior to importation into the U.S. will be considered of Canadian origin for purposes of Customs duty assessment pursuant to 19 CFR 102.19(b), provided the differential cases qualify as an originating good pursuant to General Note 12, HTSUS, and may be assessed duties at the "CA" NAFTA rate.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

Gail A. Hamill, Chief

Previous Ruling Next Ruling

See also: